Can the Most Disadvantaged Groups Benefit from Enterprise?

‘How can the most disadvantaged groups benefit from enterprise?’ to be blunt, they can’t within the current government system, or at least to say it’s very difficult, Aaron Barbour, Research and Policy Manager at linksUK, told the Prowess Conference in March 2009.

The benefit and tax credit systems have an impact on the levels of women’s enterprise, says Barbour. He worked for part of Community Links, a local charity working with over 50,000 people a year in Newham, east London called linksUK. The national team of Community Links, took that local experience and knowledge and shared it with other practitioners and policy makers across the country.

linksUK had been researching and campaigning on issues concerning the benefit and tax credit systems, employment, cash-in-hand work and enterprise for more than 10 years in 2009, because money and work were such immediate and pressing issues for the local people they worked with.

The Context in 2009

1 in 5 women entered self-employment from unemployment, compared with 1 in 15 men

Women were twice as likely to live in poverty than men

Benefit and tax credits comprised one fifth of a woman’s income, and only one tenth for men

So it was even more important for women that these systems responded to and reflected the way the labour market operated.

Women’s businesses operate:

Often part time

At varying hours

They have longer start up times, and may require longer-term support

They do this fitting in caring responsibilities

With variable incomes

And frequent changes of circumstances

Becoming self-employed or starting up a business is risky – in contrast to the low but regular income streams provided by benefit payments.

The self-employed or those running a business on a low income could claim benefit and tax credits.

If you were unemployed you could get help from government to move into enterprise. The primary way of doing that was through the government’s flagship programme – New Deal, which aimed at getting the long term unemployed back into work. When it was first launched in 1997, they forgot to include any enterprise support, but quickly cobbled together the New Deal Self-Employment option in 1998.

Take-up is low on NDSE – there are no statistics from the Department for Work and Pensions for NDYP or ND50+, but on the ND25+ self-employment option there were only 1,490 people on the self-employment option in August 2008 in the whole country.

Women were less likely to take up the self-employment route than men.

So in order to be eligible for ND25+ you had to be unemployed for 18 months. I don’t need to tell you what people are like after this period of time. For some of the period of time you could test your business called test-trading, is not long enough, particularly women and their issues. And there is a very deep lack of understanding about NDSE by staff and customers alike. In fact I’d go so far as to say that very few Jobcentre Plus staff ‘get’ enterprise and self-employment.

There were very few incentives to come off benefit. Current rules trapped people on benefit and therefore in poverty.

For example, if a parent became self-employed they automatically lost valuable ‘passported’ benefits such as free school meals and prescriptions. They entered the quagmire that is Working Tax Credit. For example, in July 2008 HMRC had 7 million calls to their telephone ‘helpline’ which weren’t, I repeat, weren’t answered by them. No-one picked up, but plenty who needed it gave up. They will experience huge benefit withdrawal rates of up to 85%; and they will have to pay disproportionate amounts of tax in relation to their income.

So when the system did not provide the support that people needed they turned to alternatives: opting out of the system – knowingly or not.

They sought support elsewhere:

Family and friends

Enterprise agencies

Specialist support like micro-credit organisations. We found in some research we conducted about five years ago with the east London micro-finance consortium, which includes Prowess flagship holders Streetcred, that not a single female client across the consortium was getting any sort of benefit.

Or people turn to the informal economy, running their businesses informally, with all the traps and perils involved in that.

New Deal was to change to become Flexible New Deal. Flexible because private and third sector contractors will be paid on outcomes – people moving into work; not by delivering a set of processes, as they currently do, like training. However what remains unclear is what, if any, self-employment provision will be offered by these contractors.

What needs to change

What needs to change? In the National Policy Centre evidence paper, Barbour and his colleagues made a number of recommendations:

Enterprise and self-employment should be a very real avenue for anyone on any benefit and/or tax credit.

DWP, HMRC and BERR must integrate their benefit, tax credit and enterprise policies if they are going to really help people; and any new changes must be checked or ‘proofed’ for the possible interactions that these could have with the other systems.

JCP and HMRC must improve their administration of their systems

DWP and Jobcentre Plus must improve their communication and marketing, particularly around NDSE.

They must also change the policy of NDSE now. Unemployed people should be able to get enterprise support from day one of being unemployed; and they should look at assessing the test-trade period in terms of levels of income, not time.

And finally, I, we cannot state strongly enough that Flexible New Deal must include specialist self-employment provision.

This article was delivered as a speech by Aaron Barbour, linksUK Research & Policy Manager, in March 2009 in Blackpool, at the Prowess Annual Conference’s Worklessness and Enterprise workshop.